In the 1990s, privatisation of public utilities was held up as the answer to decades of under-funding and inefficiency. Now, after a series of high-profile failures, Latin America is looking afresh at public sector solutions.
It comes as little surprise perhaps that the four countries that objected most strenuously to the final declaration at last month’s World Water Forum should be Latin American.

Over the past decade, the region has become synonymous with the failure of the water privatisation model.

Bolivia is a case in point. One of the four recalcitrant countries (Venezuela, Cuba and Uruguay complete the list), the land-locked state served as the battle-ground for Latin America’s so-called “water wars”.

Bolivia’s water ministry used the recent talks in Mexico to highlight its plans for a new “public-public” approach to water services.

As a first step, it announced an agreement with Eau de Paris that will see the French state-owned utility sharing its technical and management expertise with its Bolivian counterparts.

Across the border, it is a different story. Peru remains one of the few Latin American countries still pushing the door of privatisation reforms.

Last year, the Peruvian government agreed the first of 45 concessions for water and sewerage contracts. It is hoped that the private sector will turn around the country’s notoriously inefficient public water utilities.

Investors are rightly cautious about launching into such long-term commitments.
The Inter-American Development Bank is offering “soft loans” in an attempt to entice private sector bidders.

But the ten-fold increase in investment required to get Peru’s water
infrastructure back on track (government funding hovers around a paltry $43 million a year) is making most companies baulk.

Historical spectres

Lurking at the back of all investors’ minds is the example provided by Suez. The French water utility recently walked away from a 30-year operating contract in Argentina. It was forced to write off £350 million in 2002 when the Argentine currency was devalued and rates frozen.

Unsurprisingly, no private sector operator has come forward to fill the French company’s shoes. Disgruntled, the Argentine government has had to return responsibility for Buenos Aires’ water services to the state.

As policy makers look around for alternatives to the privatisation model, their eyes could well settle on Brazil. Municipal authorities in Latin America’s most populous country are responsible for 1,800 water and 4,000 sewage services.

A combination of improved efficiency and careful management is helping Brazil’s local authorities succeed where private companies have failed.

A prime example is Araraquara in São Paulo, where municipal management has resulted in a threefold increase in service coverage.

In the city of Unaí in Minas Gerais, meanwhile, investments funded by consumer tariffs have improved water significantly. In the past decade, child mortality rates have halved.

Silvano Silvério da Costa, president of the Brazilian National Association of Municipal Services of Sanitation, says there are many ways of improving the management of public services.

Top priorities include improved governance and transparency. Opaque and unaccountable management rarely lead to efficient public services.

Legislative changes are also helping Brazil’s municipal-led services. A new law allows for the formation of local authority consortia. When grouped with larger municipalities, smaller authorities can achieve economies of scale as well as accessing the experience and know-how of their public-sector peers.

Cautious governments

Yet most national governments in the region are cautious about conceding full responsibility for water policy and provision to municipalities and similar authorities.

The influence of local politics, limited budgets and bureaucratic incompetence are all put forward as arguments against a more decentralised public system.

That has not stopped some countries in Latin America going down an even more localised route.

Following Suez’s recent withdrawal from Bolivia, for example, the 800,000 inhabitants of El Alto in La Paz are proposing a “democratised public utility”.

The model borrows heavily on examples of civic participation, such as the Brazilian city of Porto Alegre, where residents maintain close oversight on construction, management and service delivery.

“There’s a growing recognition that these [examples] are about transforming the public sector and using the strong potential of civil society and the water users themselves to turn these utilities into genuinely public companies that serve the population,” says Olivier Hoedeman, co-author of the recent book “Reclaiming Public Water”.

Latin America’s experiments in small-scale development on the public management model deserve further examination. Principles of local participation, user equity and transparent management are all transferable to traditional public and private sector utilities.

The missing pieces of the puzzle, however, remain “scaleability” and financing. With or without the private sector, it’s a conundrum water ministries have long struggled to resolve.

• The greatest persisting challenge is effective waste-water treatment. In most countries, less than 10% of waste-water is treated, resulting in continued environmental degradation and health impacts in downstream populations.

Source: “Local Actions for a Local Challenge: Americas regional document”, Fourth World Water Forum, March 2006

Public versus private

• Several service models (public, private and combinations thereof) are in use throughout the region with varying levels of success.

• For example, in Santa Cruz, Bolivia, co-operatives are the only water suppliers for the city’s one million people, and no municipal utility, public or private, has ever been established.

• In Cordoba, Argentina, private providers account for about 10% to 15% of water services, covering about 38,200 households.

• On the other hand, Uruguay has become the first country in Latin America to enshrine the right to drinking water and sewage services in its constitution, and a referendum allows private provision of water and sanitation services.

Source: “Local Actions for a Local Challenge: Americas regional document”, Fourth World Water Forum, March 2006

Write to Oliver Balch, Latin America Editor at Oliver.Balch@ethicalcorp.com,
or write to the Editor at editor@ethicalcorp.com.